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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Cathay International Holdings Ld | LSE:CTI | London | Ordinary Share | BMG1965E1030 | COM SHS $0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.75 | 0.50 | 1.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCTI
RNS Number : 2339U
Cathay International Holdings Ld
27 March 2019
27 March 2019
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO, OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION.
DEFINED TERMS USED BUT NOT DEFINED IN THIS ANNOUNCEMENT HAVE THE MEANINGS SET OUT IN THE CIRCULAR
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).
Cathay International Holdings Limited
("Cathay", the "Company" or the "Group")
Proposed Further Disposal of Starry Shares
The Company is pleased to announce that further to the announcement on 30 November 2018, it will today post a circular to Shareholders setting out proposals to dispose of its remaining shares of up to 12,775,000 shares in Zhejiang Starry Pharmaceuticals Co., Ltd ("Starry") which are the remaining shares in Starry held by Group subsidiary, Lansen Pharmaceutical Holdings Limited ("Lansen") ("Further Disposal").
The Further Disposal constitutes a Class 1 transaction under the Listing Rules and is subject to the approval of shareholders at a Special General Meeting to be held at Suites 1203-4, 12F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong on Friday 12 April 2019 at 10 a.m. (Hong Kong time).
The circular will be available on the investor section of the Company's website: http://www.cathay-intl.com.hk
Background
The Company is an operator and investor in the healthcare sector in China, aiming to take advantage of the growing domestic demand for high quality healthcare products by identifying investment opportunities with an emphasis on high-growth markets. One of its principal investments is a 50.68 per cent holding in Lansen, one of China's specialty pharmaceutical companies with a focus on rheumatology.
Lansen holds shares in Starry which listed on the Shanghai Stock Exchange on 9 March 2016 (with stock code 603520). Starry, established in 1997, is a Chinese pharmaceutical company specialising in the research and development, manufacture and marketing of raw materials and intermediate ingredients for non-ionic contrast agents, including Iohexol and Iopamidol (used in interventional radiology to enhance the contrast of structures or fluids within the body in medical imaging), and of Fluoroquinolones including levofloxacin hemihydrate and levofloxacin HCL (antibacterial compounds used in the treatment and prevention of bacterial infections).
On 15 November 2010, the Group acquired interests in Starry representing 21.5 per cent of Starry at that time, of which 20 per cent was acquired through Lansen and 1.5 per cent through Full Keen (then a wholly owned subsidiary of Cathay), for total consideration of RMB 172 million (USD 25.8 million), equating to a price of RMB 8.89 per share (USD 1.33 per share). On 23 November 2012, Lansen acquired the entire issued share capital of Full Keen. Accordingly, following the acquisition of Full Keen, the Group's entire interest in Starry is held through Lansen.
The Group's investment in Starry is accounted for as an interest in an associate and has a book value of RMB 161.1 million (approximately USD 24.3 million) as at 30 June 2018, being the date of the Group's most recent published balance sheet.
As at 30 June 2018, Starry had net assets of RMB 877.3 million (approximately USD 132.6 million). As at 25 March 2019, being the latest practicable date prior to the publication of the Circular, Starry had a market capitalisation of RMB 3.5 billion (USD 518.6 million).
At the time of Starry's listing on the Shanghai Stock Exchange it had a valuation of RMB 1.46 billion (approximately USD 224.2 million), valuing the Group's then 16.125 per cent shareholding (as diluted by the issue of new Starry Shares at the time of its listing) at approximately RMB 235 million (approximately USD 36.1 million). Starry's share price rose significantly from the IPO price of RMB 12.15 (USD 1.87) per share and the Group subsequently sold 4,175,000 shares at RMB 43.11 (USD 6.25) each on 15 March 2017 (First Disposal) and a further 2,400,000 shares at RMB 27.22 (USD 4.24) each on 6 June 2018 (Second Disposal), representing, in aggregate, gross sale proceeds of RMB 245.3 million (approximately USD 36.3 million) and a gain on disposal of RMB 140.0 million (approximately USD 20.7 million). As a result, as at the date of the Circular, the Group holds 12,775,000 Starry Shares representing 10.65 per cent of the issued share capital in Starry.
Accordingly, the Company has already made a significant return on the Starry Shares: the First and Second Disposals realised an aggregate cash sum (USD 36.3 million) in excess of the total cost of the original investment (USD 25.8 million) and a return of 320 per cent. The Second Disposal was completed on 6 June 2018 at a price of RMB 27.22 (USD 4.24) per share. The current market price of a Starry Share is RMB 29.01 (USD 4.32), valuing the Group's remaining shareholding at RMB 370.6 million (approximately USD 55.2 million). A sale at this price would generate a return of approximately 226 per cent on the original price paid. However, for the purposes of seeking Shareholder approval for the Further Disposal, the Company has set a minimum price of RMB 12.61 (USD 1.88) per share, being the current book cost of the Starry Shares. A sale at this price would generate gross proceeds of RMB 161.1 million (approximately USD 24.0 million), representing a return of 42 per cent on the original cost of the Starry Shares (before expenses and taxes, estimated at USD 860,000).
The Group's investment in Starry was originally intended to provide Lansen with opportunities to participate in the upstream supply business in the pharmaceutical industry value chain and allow it to benefit from Starry's experience in areas including bulk pharmaceuticals production technology, good manufacturing practice certification, cost and quality control and environmental protection. However, in practice the Group and Starry operate in different markets and the Group has decided against participating in the upstream supply business for the time being. Accordingly, the Directors are of the view that there is no longer a strategic reason to retain an interest in the Starry Shares.
Although, Starry has paid dividends historically, these have provided a relatively low return as compared with the capital gains made by the Group on its original investment or compared with the current market price of Starry Shares. Accordingly, the Directors believe that the Group would need to retain its shareholding in Starry for many years to achieve the same cash return which they now believe can better be achieved through the Further Disposal.
The First Disposal and the Second Disposal realised gains on the Group's investment in Starry and had a positive impact on the Group's financial position. The net proceeds of the First Disposal and the Second Disposal were used by Lansen for working capital.
Accordingly, the Company is of the view that the Further Disposal is in the Shareholders' interests as:
-- the investment in Starry no longer fits with the Group's strategy;
-- the cash returns achieved and achievable by selling the Starry Shares outweigh the anticipated returns from dividend income; and
-- the Further Disposal would yield a material return on investment and a material amount of cash which can be applied to the Group's working capital requirements.
2.2 Terms and Conditions of the Further Disposal
The Group intends, subject to shareholder approval, to dispose of all or part of its shareholding in Starry, subject to the prevailing market conditions in a gradual manner in order to realise the remaining value of its investment in Starry.
The Further Disposal is subject to:
i) Approval by Shareholders as described in the Circular ii) Approval by Lansen's shareholders.
In accordance with the rules of the Hong Kong Stock Exchange, Lansen announced its intention to dispose of the remaining Starry Shares on 30 November 2018, conditional, inter alia, on approval by its shareholders and is expected to issue a circular to its shareholders shortly giving notice of an extraordinary general meeting at which such approval will be sought.
Cathay holds shares in Lansen representing 50.68 per cent of the votes capable of being cast at any meeting of Lansen shareholders and intends, subject to the approval of the Further Disposal by Shareholders, to vote in favour of the resolution at the meeting of Lansen's shareholders.
iii) Method of disposal
The Group shall dispose of all or part of the Starry Shares through one or more on market transactions on the Shanghai Stock Exchange.
The Further Disposal will not be completed in an off-market transaction (known as a transfer agreement). However, if an opportunity arises to dispose of all or part of the Starry Shares in the future through transfer agreement, the Company will seek separate Shareholders' approval before entering into such a transaction.
iv) Period of authority
The authority to proceed with the Further Disposal, if approved by Shareholders, will be valid for a period of 12 months following the date of the SGM. If the Company has not sold all of the Starry Shares by the end of that period, no further Starry Shares may be sold under this authority and the Company may need to seek shareholder authority for any future disposals.
v) The terms of the Lock-Up Undertaking, entered into at the time of Starry's IPO and the rules of the Shanghai Stock Exchange.
Under the terms of the Lock-Up Undertaking, within the two-year period immediately following the first anniversary of Starry's IPO (being the period expiring on 9 March 2019), Lansen undertook not to dispose of more than 50 per cent of its aggregate interests in Starry in each subsequent year. This is calculated by reference to the aggregate interests held as at the last trading day of the preceding calendar year. Lansen therefore continues to be bound by the terms of the Lock-Up Undertaking and the Further Disposal will take place in accordance with such terms.
vi) The Minimum Selling Price of RMB 12.61
The Minimum Selling Price is equal to the Group's book cost of investment in the Starry Shares as at 30 June 2018 and represents the lowest acceptable price at which the Starry Shares will be sold by the Group.
In addition, the Minimum Selling Price shall also represent no more than a 10 per cent discount to the trading price of Starry Shares on the Shanghai Stock Exchange at the relevant times. The maximum discount of 10 per cent is prescribed under the current rules of Shanghai Stock Exchange.
The Board considers that the Minimum Selling Price will allow flexibility for the Directors to accommodate fluctuations in market conditions.
At the Minimum Selling Price, the Further Disposal would generate cash of up to RMB 161.1 million (approximately USD 24.0 million) (before expenses and taxes, estimated at USD 860,000). At the current market price of RMB 29.01 (USD 4.32) (as at 25 March 2019, being the latest practicable date prior to the date of the Circular), the Further Disposal would generate cash of up to RMB 370.6 million (approximately USD 55.2 million) (before expenses and taxes, estimated at USD 860,000). Accordingly, the Further Disposal is expected to generate a material further cash gain which would have a positive impact on the financial position of the Group as a whole.
2.3 Financial position of the Group
At 30 June 2018, being the last published balance sheet for the Group, the consolidated balance sheet showed total assets of USD 435.5 million (31 December 2017: USD 436.6 million), total liabilities of USD 289.6 million (31 December 2017: USD 286.2 million), giving net assets of USD 145.9 million (31 December 2017: USD 150.4 million), and net current liabilities of USD 57.0 million (31 December 2017: USD 58.8 million).
The Group uses a series of loans and facilities with varying maturity dates, along with cash balances, to finance the working capital requirements of its operations. Most of these borrowings are relatively short term, especially in China, in order to take advantage of the lower rates of interest which are generally available for shorter term borrowing. At 30 June 2018, being the last published balance sheet date, the consolidated balance sheet for the Group showed total borrowings of USD 193.2 million, of which USD 137.2 million was due for repayment within one year, and total cash balances of USD 51.9 million, of which USD 28.1 million was held in pledged bank accounts (as security against borrowings). In addition to the borrowings repayable within 12 months are related party loans of, in aggregate USD 14.8 million, in respect of which the lenders have confirmed that they will not demand repayment before 30 June 2020.
This level of borrowing and requirement to repay, renew or refinance is in line with the Group's current commercial practice and with prior periods.
The Group has considerable experience of raising short term debt finance. The Group has repaid borrowings of between USD 109.9 million and USD 198.2 million in each of the last three financial years and USD 81.6 million of borrowings in the first half of 2018 (an average of USD 148.2 million per annum); and that the Group has received funds from new borrowings of between USD 120.1 million and USD 187.9 million in each of the last three financial years and USD 84.2 million in the first half of 2018 (an average of USD 156.5 million per annum).
Financial independence of Lansen
Lansen, the Group's largest subsidiary which is listed on the Hong Kong Stock Exchange, is managed independently and consequently its working capital requirements are independent of those of the rest of the Group (although it too employs a financing strategy based on short term borrowings). Other than operating cash flows associated with trading between Lansen and the rest of the Group, there are no working capital flows between Lansen and the rest of the Group.
The Company has received dividends from Lansen of USD 6.1 million in the year ended 31 December 2017 (including a special dividend of USD 4.0 million following the First Disposal of Starry Shares) and USD 2.7 million in the year ended 31 December 2016. These dividends have been used by the Company for working capital purposes within the Group (excluding Lansen).
The Further Disposal, if it proceeds, would generate cash within Lansen. The proceeds of the proposed disposal of the Starry Shares are primarily intended to be used by Lansen for its working capital purposes, rather than the wider Continuing Group. However, if Lansen decides to pay a dividend using its retained profits and/or the proceeds of the sale of the Starry Shares, this would be used by the Continuing Group (excluding Lansen) for working capital purposes.
The financial independence of Lansen within the Group and the requirements to refinance short term borrowings is illustrated in the following analysis.
Table 1 below sets out a summary of the net debt position (being cash balances less borrowings) and debt related cash flows for the Group derived from the Group's audited annual statements for the years ended 31 December 2015, 2016 and 2017 and the most recently published unaudited 2018 interim accounts:
Table 1: Net debt and Debt related cash flows
NET DEBT POSITION
Hot Features
Premium
As at
30 June
As at 31 December 2018
2015 2016 2017
USDm USDm USDm USDm
Net debt
Cathay (excluding Lansen) (79.6) (83.7) (87.1) (96.3)
Lansen (47.2) (67.9) (57.6) (45.0)
Group (126.8) (151.6) (144.7) (141.3)
DEBT RELATED CASH FLOWS
Six months
ended
Year ended 31 December 30 June
2015 2016 2017 2018
USDm USDm USDm USDm
Cash flows from financing activities
Cathay (excluding Lansen)
Proceeds from borrowings 25.3 35.0 69.3 19.2
Repayment of borrowings (22.2) (26.3) (70.5) (10.1)
Lansen
Proceeds from borrowings 94.8 120.4 118.6 65.0
Repayment of borrowings (87.7) (102.6) (127.7) (71.5)
Group
Proceeds from borrowings 120.1 155.4 187.9 84.2
Repayment of borrowings (109.9) (128.9) (198.2) (81.6)
Since 30 June 2018, the Group has operated within the terms of its existing borrowings and all borrowings which have matured have been repaid or refinanced in accordance with their terms.
At 25 March 2019, being the latest practicable date prior to publishing the Circular, the Group had borrowing facilities of USD 322.6 million of which approximately USD 194.3 million had been drawn. The table below shows the maturity profile of these facilities and borrowings - i.e. that borrowings of USD 130.9 million are due to mature in the next 12 months and must be repaid or refinanced during that period and that total borrowing facilities reduce from USD 322.6 million to USD 189.6 million by March 2020.
Table 2: Existing borrowings - maturity profile
Borrowings due for repayment
by:
March
2020
(i.e.
Total 12 months
as at from the
25 March date of March March
2019 the Circular) 2021 2022
USDm USDm USDm USDm
Borrowings
Cathay (excluding Lansen) 103.5 40.1 3.8 59.8
Lansen 90.8 90.8 - -
Total Group borrowings 194.3 130.9 3.8 59.8
Remaining balance by:
March
2020
(i.e.
Total 12 months
as at from the
25 March date of March March
2019 the Circular) 2021 2022
USDm USDm USDm USDm
Borrowing facilities
Cathay (excluding Lansen) 114.4 74.0 70.2 -
Lansen 208.5 115.6 99.1 9.0
Total Group borrowing facilities 9.0
322.6 189.6 169.3
========== =============== ====== ======
The Group will need to continue to raise new borrowing facilities to replace existing borrowings as they mature (or to extend the terms of existing facilities), as it has done successfully to date. However, since 30 June 2018 and as announced by the Company, trading within the Group has fallen further below expectations which, if it continues, may increase the risk that the Group will find it more difficult (and more expensive) to raise finance when required and consequently that it may default on existing borrowings.
2.4 Information on Starry
Management Team
The management team of Starry is as follows:
Mr. Hu Jinsheng is the Chairman of Starry. Mr. Hu Jian is the Deputy Chairman and General Manager of Starry.
In addition, Lansen currently has a nominated non-executive director re-elected to the board of directors of Starry following an extraordinary general meeting held on 29 March 2017. This re-election is for a minimum period of three years.
Financial information on Starry
The historical financial information presented below in relation to Starry has been extracted without material adjustment from the Group's audited consolidated accounts and the accompanying notes for the financial years ended 31 December 2015, 2016 and 2017 and the unaudited consolidated interim results for the six months ended 30 June 2017 and 2018.
Six months ended
Year ended 31 December 30 June
2015 2016 2017 2017 2018
USD'000 USD'000 USD'000 USD'000 USD'000
Consolidated Statement
of Profit or Loss
Share of post-tax profit
of associate 2,162 1,720 1,731 1,147 1,235
Consolidated Statement
of Financial Position
Equity attributable to
owners of Starry 67,841 116,569 131,184 n/a n/a
Proportion of the Group's
ownership interest in
Starry 21.5% 16.1% 12.6% n/a n/a
14,586 18,768 16,529 n/a n/a
Goodwill 19,282 13,427 11,593 n/a n/a
Other adjustments (178) (48) 42 n/a n/a
Carrying amount of the
Group's interest in Starry 33,690 32,147 28,164 26,605 24,347
Consolidated Statement
of Cash Flows
Adjustments to cash flows
from operating activities
Share of post-tax profit
of associate (2,162) (1,720) (1,731) n/a n/a
Cash flows from investing
activities
Dividend received from
associate 1,517 796 225 225 116
Notes:
1. The Group accounts for its interest in Starry using the equity method. Starry, the interest being indirectly held via Lansen, is the only interest in associate appearing in the Cathay financial statements. As Cathay holds a 50.68 per cent interest in Lansen, it is consolidated as a subsidiary in the Group accounts and therefore the share of post-tax profit and dividend received from Starry, together with the carrying value of the Group's interest in Starry, are shown prior to any adjustments in respect of value attributable to the minority holders of Lansen.
2. Data for the six months ended 30 June 2018 is unaudited and is extracted from the Group interim accounts published on 31 August 2018. The interim accounts do not provide full details on Consolidated Statement of Financial Position and Consolidated Statement of Cash Flows in respect of associates.
Shareholders should read the whole Circular and should not rely on the summarised financial information set out above.
2.5 Use of Proceeds
The proceeds of the Further Disposal will be received by Lansen and will be used by Lansen for general working capital.
Lansen has in the past paid dividends including a special dividend in 2017 following the First Disposal of Starry Shares, of which Cathay received USD 4.0 million. If a dividend is paid by Lansen, these proceeds would be used by the Continuing Group (excluding Lansen) for general working capital purposes.
2.6 Effect of the Further Disposal on the Continuing Group
Assuming that the disposal of all of the Starry Shares is made at the Minimum Selling Price, the estimated gross sale proceeds would be approximately RMB 161.1 million (approximately USD 24.0 million) (before expenses and taxes, estimated at USD 860,000). At the Minimum Selling Price, a nil gain/loss would be recorded in the Continuing Group's profit and loss account and there would be no impact to the net asset value of the Company (before expenses and taxes, estimated at USD 860,000).
If the actual selling price is higher than the Minimum Selling Price, the cash proceeds would be higher, a gain would be recorded and net assets would increase by an amount equal to the excess over the Minimum Selling Price.
Shareholders should note that the actual amounts of proceeds, accounting gain or loss and the effects on the net assets and earnings of the Continuing Group will depend on the actual selling prices of the disposal of the Starry Shares.
Furthermore, the Group currently recognises its share of Starry's post-tax profits and dividends paid by Starry. Following the Further Disposal of all Starry Shares in full, the Continuing Group will cease to recognise its share of Starry's post-tax profits and dividends paid by Starry in proportion to the number of Starry Shares sold. The amounts recognised by the Group in the years ended 31 December 2015, 2016 and 2017 are shown above under the heading, "Financial information on Starry".
A pro forma statement of net assets showing the effect of the Further Disposal on the Continuing Group assuming the entire shareholding in Starry is sold at the Minimum Selling Price is set out in Part III of the Circular.
3. Strategy, current trading, trends and future prospects 3.1 Continuing Group
Strategy
The Company is a main market listed investment holding company and an operator and investor in the growing healthcare sector in the PRC. Taking advantage of growing domestic demand for high quality healthcare products in the PRC, the Company aims to identify investment opportunities with emphasis on high growth healthcare markets and build them into market sector leaders. The Company has already demonstrated a track record of identifying investment opportunities in this area including: Lansen, a PRC specialty pharmaceutical company focused on rheumatology, Jilin Haizi, a PRC inositol manufacturer, Natural Dailyhealth, a company engaged in the production and sales of plant extracts for use as key active ingredients in healthcare products, and Botai, a company engaged in the production and sales of collagen products.
The Group employs more than 1,800 people across the PRC, including over 20 specialist corporate and business development staff based at the holding company's offices in Hong Kong and Shenzhen. The Company also has a hotel investment in Shenzhen.
Current trading, trends and future prospects
The Group faces challenging economic conditions, regulatory changes and tough competition which have had and will continue to have an adverse impact on revenues and profits, in particular in the Group's healthcare businesses.
Lansen, which is the largest of the Group's Healthcare businesses, announced its results for the year ended 31 December 2018 on 27 March 2019 in which it commented that, inter alia, as a result of these trading conditions and operational measures aimed at returning its operations to growth, it had recorded a significant decrease in its net profit for the year ended 31 December 2018 as compared with that for the year ended 31 December 2017.
Haizi, Natural Dailyhealth and Botai similarly experienced challenging trading conditions throughout 2018.
The Group has responded to these difficult trading conditions by endeavouring to develop more of its own products, rather than agency products, to better manage working capital and to strengthen its cash flow. In the short-term these measures will continue to have an adverse impact on revenues and therefore profitability, but the Board believes that the longer-term business fundamentals are unaffected. This revised strategy continues in to 2019.
The Hotel performed in line with expectations throughout 2018.
The Company anticipates that these trading conditions and trends will continue in 2019.
The current trade tension between the US and China appears to be weighing on growth as evidenced by the recent disappointing retail sales and industrial output figures in China and may impact the healthcare extract products such as inositol and bilberry which have end customers based in the US. The Hotel and the cosmeceutical businesses may also be adversely affected should the trade friction escalate and slow down China's economy. However, the trade tension should have little impact on the pharmaceutical business where the focus is on the domestic market, albeit subject to intense competition.
3.2 Starry
Starry is building a product chain covering pharmaceutical intermediates, APIs and finished products. Starry plans to further increase research and development in order to consolidate its technology advantage and develop new product lines. Starry's business plan includes product development and innovation, marketing and brand building, internal reform and human resource development. It will look for M&A opportunities both domestically and internationally and will consider suitable financing options as required.
In the first half of 2018, Starry's operation was stable with no major changes in the external environment and internal production. For the six months ended 30 June 2018, Starry recorded an operation revenue of RMB 428 million. Starry has stated publicly that it aims to generate operation revenue of RMB 900 million in 2018.
4. Working Capital
In the opinion of the Company, the Continuing Group does not have sufficient working capital for its present requirements, that is, for at least the next 12 months following the date of the Circular.
For the purposes of making this working capital statement the Company has prepared and analysed a downside working capital forecast for the Continuing Group to illustrate the effects of a reasonable worst case scenario, which assumes, inter alia, that the Further Disposal does not proceed, Lansen does not pay a dividend in 2019 and 2020, current borrowings are not renewed or refinanced before their maturity dates and trading continues to fall below expectations resulting in an operating loss. Under the downside working capital forecast, the Continuing Group will incur a net cash outflow from operating and investing activities, in addition to the repayment of borrowings, resulting in a working capital shortfall for the Continuing Group of USD 3.8 million arising in May 2019 increasing to USD 58.1 million by March 2020.
The Continuing Group's major subsidiary, Lansen, manages its working capital independently within the Group. Throughout the period covered by the working capital statement, Lansen is forecast to operate within its existing borrowing facilities. Therefore, the shortfall identified above reflects the downside forecast for the Continuing Group (excluding Lansen).
The downside working capital forecast also shows an ongoing working capital shortfall beyond the next 12 months for the Continuing Group, primarily due to expiry of existing borrowing facilities and repayment of existing borrowings, and assuming operating losses.
Therefore, the Continuing Group anticipates that it will need to raise up to USD 58.1 million in order to maintain sufficient working capital for the period of 12 months from the date of the Circular. Thereafter, the Continuing Group will need to raise sufficient funds to cover ongoing operating losses and to repay or refinance borrowings.
The principal sources of finance to address the working capital shortfall within the Continuing Group in the next 12 months and beyond are expected to come from the Further Disposal, new borrowings (or through negotiating extended terms and renewals of existing borrowings) and achieving revenue growth under the current strategy which returns the Continuing Group to profitability.
The Further Disposal, if it proceeds, would generate cash within Lansen. The proceeds of the proposed disposal of the Starry Shares are primarily intended to be used by Lansen for its working capital purposes, rather than the wider Continuing Group and would not therefore impact the working capital shortfall of USD 58.1 million identified above. However, if Lansen decides to pay a dividend using its retained profits and/or the proceeds of the sale of the Starry Shares (Cathay received a dividend of USD 4.0 million in 2017 following the First Disposal of Starry Shares), this would reduce the working capital shortfall.
The Continuing Group is in discussions with existing lenders to release an additional facility in April 2019, which would provide sufficient headroom under the downside working capital forecast through to June 2019 at which time borrowings with a current balance of approximately USD 55.6 million fall due for repayment. Negotiations regarding the borrowings maturing in June will commence over the coming weeks and the Group would normally expect these to conclude only shortly before the date of maturity.
The Directors are confident of returning the Continuing Group to growth over the medium term and that doing so could generate additional cash; however, the Company has no expectation that improving trading performance will materially reduce the Group's working capital shortfall in the next 12 months.
Accordingly, the Directors expect that the Continuing Group will primarily raise the working capital that it needs for the foreseeable future from the proceeds of the Further Disposal and new borrowings (or through negotiating extended terms and renewals of existing borrowings).
To the extent that the Continuing Group cannot address its shortfall through these measures, the Continuing Group may also consider asset disposals, specifically, non-core assets such as the hotel in Shenzhen and an associated staff accommodation block. Lastly, if increasing borrowings and/or asset sales are not sufficient to meet the shortfall, the Company would consider alternative sources of finance, including, if necessary, raising additional equity capital or liquidating part of its equity holdings in Lansen in the open market.
If all of the above actions were unsuccessful, it is likely that the Company would not be able to continue as a going concern. If the Company is not able to continue as a going concern, it would enter an insolvency process. Whilst the Continuing Group has net assets based on the last published balance sheet, there would be no certainty of the value that may remain for Shareholders, if any, once all liabilities had been settled and the shares would cease trading on the London Stock Exchange.
5. Irrevocable Voting Undertakings
Circle Finance and Mega Worldwide, the entities through which Mr Wu Zhen Tao, Executive Chairman of Cathay, holds an interest in Cathay Shares, have irrevocably undertaken to vote in favour of the Resolution in respect of their respective shareholdings in the Company, which represent approximately 61.0 per cent of the votes capable of being cast at the Special General Meeting.
6. Action to be taken
The Resolution is subject to the approval of Shareholders. A notice convening the SGM is set out at the end of the Circular. A Form of Proxy for use by Shareholders or a Form of Direction for use by DI Holders, as applicable, in connection with the SGM is enclosed. If you are a Shareholder, you are requested to complete, sign and return the Form of Proxy. If you are a DI Holder, you should refer to the notes on the Form of Direction, whether or not you intend to be present at the SGM, and return it to Link Asset Services, The Registry, PXS 1, 34 Beckenham Road, Beckenham, BR3 4ZF, United Kingdom as soon as possible and, in any event, so as to arrive no later than 4.00 p.m. on 8 April 2019. Shareholders should return the Forms of Proxy so as to arrive no later than 9.00 a.m. on 9 April 2019.
If you are a Shareholder (but not a DI Holder) the completion and return of a Form of Proxy will not prevent you from attending the SGM and voting in person should you subsequently wish to do so. If you are a DI Holder, completion of the Form of Direction will not preclude you from attending the SGM should you wish. If you are a DI Holder and wish to attend the SGM please contact the Depositary, Link Market Services Trustees Limited at The Registry, 34 Beckenham Road, Beckenham, BR3 4ZF, United Kingdom, not later than 9.00 a.m. on 9 April 2019.
CREST members who wish to instruct the Depositary to vote through the CREST system may do so by using the procedures described in "the CREST voting service" section of the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed one or more voting service providers, should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
7. Further information
Your attention is drawn to the further information contained in Parts II to VI of the Circular. You are advised to read the whole of the Circular rather than relying on the summary information set out in this announcement.
8. Risk Factors
Part II of the Circular sets out risk factors associated with the Further Disposal, those risk factors for the Group which are impacted by the Further Disposal, and any new risk factors for the Group arising from the Further Disposal. These factors could have an adverse impact on the Group's results of operations, financial condition and prospects.
9. Recommendation
The Board considers the Further Disposal to be in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends Shareholders to vote in favour of the Resolution.
The Directors intend to vote in favour of this Resolution in respect of their own beneficial holdings of 229,706,434 Common Shares, representing approximately 62.2 per cent of the votes capable of being cast at the Special General Meeting.
For further enquiries, please contact:
Cathay International Holdings Limited Eric Siu (Finance Director) Tel: +852 2828 9289 Patrick Sung (Director and Controller) Consilium Strategic Communications Mary-Jane Elliott / Matthew Neal / Tel: +44 (0) 203 709 Lindsey Neville 5702
About Cathay
Cathay International Holdings Limited (LSE: CTI.L) is a main market listed investment holding company and an operator and investor in the healthcare sector in the People's Republic of China (the "PRC"). The Group aims to leverage on investment opportunities in the growing domestic demand for high quality healthcare products in the PRC and build portfolio companies into market sector leaders with competitive edge. Cathay has already demonstrated a track record of identifying investment opportunities in this area including: Lansen, a PRC specialty pharmaceutical company focused on rheumatology and dermatology; Haizi, a PRC inositol manufacturer; Natural Dailyhealth, a company engaged in production and sales of plant extracts for use as key active ingredients in healthcare products; and Botai, a company engaged in collagen products.
The Group employs approximately 1,800 people across the PRC, including over 20 specialist corporate and business development staff based at the holding company's offices in Hong Kong and Shenzhen. Cathay also has a hotel investment in Shenzhen. For more information please visit the Company's website: http://www.cathay-intl.com.hk.
About Lansen
Lansen, whose shares are listed on the main board of the Hong Kong Stock Exchange, is a 50.68% owned subsidiary of Cathay. Lansen is engaged in the manufacture, distribution and development of specialty prescription drugs for treatment of autoimmune disorder in rheumatology and dermatology. Lansen specialises in disease modifying anti-rheumatic drugs ("DMARDs") for treatment of rheumatoid arthritis ("RA") in the PRC. Lansen has established an extensive distribution network, covering more than 1,000 hospitals in four municipalities, 25 provinces and cities in the PRC. For more information please visit the Lansen's website: http://www.lansen.com.cn/en/index.aspx.
About Starry
Starry, whose shares are listed on the Shanghai Stock Exchange (stock code 603520), is 10.6% owned by Lansen. Starry is specialised in the research and development, manufacture, marketing and sales of bulk pharmaceuticals and intermediates. One of the core products of Starry is iohexol for X-CT non-ionic contrast agents. Starry is the largest iohexol manufacturer in the PRC and is experienced in the production management and quality control of bulk pharmaceuticals. For more information please visit Starry's website: http://www.starrypharm.com/en/index.aspx.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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(END) Dow Jones Newswires
March 27, 2019 12:59 ET (16:59 GMT)
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